Thoughts

Run, don't walk, to read Mary Meeker's analysis of America's financial statements.

There seems to be a lack of conviction around the direction of bank earnings.

This is best expressed by the implied volatility of between 4% and 6% percent in numerous bank and non-bank financial shares, including BAC, 4.1%, WFC, 4.1%, STT, 5.1%, HIG, 6.4% and PRU, 4.7%.

Structural Unemployment Is Ever-Present:

Globalization, technological advances and the use of temporary workers becoming a permanent condition of the workplace are all conspiring to keep unemployment elevated and wage growth restrained. The lower the skill grade and income, the worse the outlook for job opportunities and real income growth. (This is not a statement of class warfare; it's a statement of fact.)

Home Prices Remain Pressured:

The consumer's most important asset, his home, continues to deflate in value, despite the massively stimulus policies, a multi-decade high in affordability, improving economics of home ownership vs. renting and burgeoning pent-up demand (reflecting normal population and household formation growth). Consumer confidence has continued to suffer from the unprecedented home price drop, which has been exacerbated by the aforementioned (and decade-plus) stagnation in real incomes. The toxic cocktail of weak home prices, limited wage growth and nagging upside commodity price pressures (particularly from the price of gasoline), will likely pressure retail spending for the remainder of 2011.